Registered Branch of a Foreign Company
A registered branch (in Czech "odštěpný závod") provides a foreign company with an opportunity to carry out its business activities in the territory of the Czech Republic. The head of the registered branch (in Czech: "vedoucí odštěpného závodu"), as the statutory representative of a foreign company, may act for the foreign company in any and all matters regarding the registered branch. Such acting includes, without limitation, negotiating with business partners and concluding agreements (a party to such agreements will always be the foreign company), and representing the company in matters concerning its registered branch before Czech authorities and courts.
Registered branch vs. organisational component
The Commercial Code (Act No. 513/1991 Coll.) distinguished between organisational components (in Czech "organizační složka") of national and foreign companies. An organisational component of a local company was referred to as a registered branch (as it is called now), but when it came to foreign companies, such component was called an organisational component of a foreign company. Registered branches and organisational components of foreign companies were entered in the Commercial Register using those names. The Commercial Code was repealed as at 31 December 2013.
The Civil Code (Act No. 89/2012 Coll.), which has been the backbone of the recodification of Czech private law since 2014, unified the terms in this area, setting forth that both local and foreign organisational components are to be marked identically, as registered branches. Although the organisational components are now to be registered into the Commercial Register under the same name, i.e. as a registered branch (regardless of the address of the company’s registered office), organisational components of a foreign company that had been registered at the time the Commercial Code had been effective, i.e. before 31 December 2013, will not be re-named in the Commercial Register, and so such two names will keep coexisting, at least in the register database.
The previous legislation linked the registration of the organisational component of a foreign company into the Commercial Register to the authorisation (licence) to carry out business in the territory of Czech Republic. Although the authorisation to do business in the territory of Czech Republic is no longer linked with the entering of the registered branch in the Commercial Register, foreign companies must naturally keep observing other terms and conditions for carrying out business, including, inter alia, the possession of a trade authorisation (licence) under the Trades Licensing Act (Act No. 455/1991 Coll.), the obtaining of which is subject to the registration into the Commercial Register. For the sake of completeness, it is necessary to note that the Trades Licensing Act deems a foreign company to be only a company that does not have its registered office in any of the EU member states. Although the Act does not explicitly set out the obligation to have a registered branch of a company seated in the European Union entered in the Commercial Register, we recommend registering it for the sake of legal certainty and, above all, given the established practice of Trades Licensing Authorities.
Purpose of the registered branch
From the legal point of view, the registered branch is the so-called branch office, i.e. a part of an enterprise which is economically and functionally independent and which is subject to registration into the Commercial Register1. From the outside point of view, the registered branch will seem to be a separate part of a foreign company, represented by a certain set of items (things) in the Czech Republic.
The registered branch is not a legal entity, and when established, it will still form part of the company’s enterprise (in Czech "závod"). Accordingly, the registered branch may not perform any legal acts for its behalf. A party to any agreement must always be the foreign company.
Practical consequences of the registered branch establishment
If we set aside the necessity to establish the registered branch in certain cases, the founding of the registered branch brings numerous advantages to the company doing business in the Czech Republic. These include, without limitation:
- The possibility to dispose of the registered branch from the legal point of view. An enterprise is deemed to be a so-called collective item, and constitutes a classical subject of legal relations. The law specifically regulates e.g. a purchase or usufructuary lease (in Czech “pacht”) of an enterprise, and the same regulation will also apply to registered branches.
- The authorisation of the head of the registered branch to represent the company in any and all matters related to the registered branch, both before business partners, and before courts and authorities.
- The possibility to grant a proxy (corporate representation power, in Czech “prokura”) for legal acts concerning the registered branch matters.2
The head of the registered branch
The head of the registered branch may represent the company in any and all matters concerning the registered branch, from the date on which the head is entered in the Commercial Register (his/her registration has the so-called constitutive effects). The role of the head of the registered branch is to inter alia:
- Represent the company in business negotiations concerning the registered branch (representation under substantive law).
- Represent the company in court and administrative proceedings concerning the registered branch (representation under procedural law).
The authorisation of the head of the registered branch to act for the company as its statutory representative in matters concerning such registered branch ceases to exist if the head resigns, deceases, is revoked by the company or if the company is dissolved.3
Entry in the Commercial Register
The data of the registered branch that are to be entered in the Commercial Register (as required by Act No. 304/2013 Coll., on the Public Registers of Legal Entities and Natural Persons), include without limitation4:
- The name, location and Corporate ID No. (in Czech "identifikační číslo" – a number that will be assigned by the register court) of the registered branch;
- The scope of business or activities of the registered branch (must be consistent with the business licence/authorisation of the foreign company in the Czech Republic);
- The name of the foreign company, its legal form and amount of subscribed registered capital, if that is required abroad;
- The law governing the foreign company; if that law requires that the foreign company be registered, then also its specification and registration number;
- The data concerning the statutory body/bodies of the foreign company and proxy holder (in Czech "prokurista");
- The data concerning the head of the registered branch, address where he/she dwells or resides.
Any petition to register, change or delete data entered in the Commercial Register must always be filed by the company whose registered branch is involved. A petition to change the registered data may also be filed by the head of the registered branch himself/herself (except for a petition for his/her own registration or deregistration, for the registration of a new head of the registered branch if the office of the previous head has terminated, or for the deletion of the registered branch from the Commercial Register, unless such organisational component is to be dissolved with effects occurring as at the date of its deletion from the Commercial Register).
Proceedings on the petition to enter a foreign company fall within the jurisdiction of the applicable regional court in whose district the foreign company’s registered branch has its seat.5
Marking the registered branch
Unlike the repealed Commercial Code, the current Civil Code no longer imposes an obligation to mark a registered branch using the business person’s corporate name with an appendix stating that it is a registered branch. However, even in the absence of an express legal regulation concerning the marking of a registered branch, it is necessary to consider associated legislation, above all the one regulating the business/corporate name of an entrepreneur, and the ban on giving a misleading impression related thereto. Given the to-date experience, the marking of the registered branch using the entrepreneur’s corporate name with an appendix stating that it is a registered branch, i.e. as was the rule under the previous legislation, can be deemed to be a faultless solution.
1See § 503 section 1 of Act No. 89/2012 Coll.
2See § 450 of Act No. 89/2012 Coll.
3See §448 of Act No. 89/2012 Coll.
4See §49 and §50 of Act No. 304/2013 Coll.
5See § 75 section 3 of Act No. 304/2013 Coll.
6See § 424 of Act No. 89/2012 Coll.
Why choose us
We provide custom solutions
We also provide legal services and accounting
We do everything for you
"I take this opportunity to thank you and your colleagues for very qualified support in good times and bad. I do hope that things had gone differently. But then I am in Germany and still in business and now know the possibilities that the Czech Republic offers. I will certainly be back with you as soon as the next opportunity arises."
Pramod Srivastava, Geschäftsführer / CEO, Ahorn Lösungen GmbH
"Companies.cz are an absolute pleasure to work with. Their attention to detail and often going above and beyond exceeded our expectations. The professionalism of Jaroslav Malek, his responsiveness and pleasant manner assured the process of company creation to flow seamlessly. We wholeheartedly recommend them without hesitation."
Olja Sofronijevic and Ivan Isakovic, Al Karam Creative Solutions s.r.o.
"Thanks for your info and thanks for your excellent service."
Santhosh Sugumaran, Head of CZ branch of Sevanan Business School GmbH